Wendy's plans to partner with a startup to open 700 delivery-only ghost kitchens by 2025. An exec breaks down why.

• Wendy's plans to open 700 ghost kitchens operated by startup Reef to cook food for delivery only.
• CEO Todd Penegor said Wednesday that each Reef kitchen could make up to $1 million in annual sales.
• Wendy's exec Abigail Pringle told Insider why the chain was expanding its ghost-kitchen network.

Even as the economy reopens and customers flock back to restaurant dining rooms, Wendy's is betting that the demand for takeout is here to stay: it's planning to open 700 ghost kitchens with startup Reef by 2025, it said Wednesday.

Ghost kitchens, which don't have dining rooms and just cook food for delivery, are one of the biggest restaurant trends to come out of the pandemic. Usually, customers can only get food from these kitchens by ordering on the restaurant's website or app, or via a third-party delivery service like DoorDash, Grubhub, or Uber Eats.

Wendy's new ghost kitchens will be spread across the US, Canada, and the UK, with around 50 set to open by the end of 2021, Wendy's CEO Todd Penegor said on the company's earnings call Wednesday.

Each unit could make up to $1 million a year in sales, he predicted.

The partnership with Reef would allow Wendy's to expand more into urban locations and to target areas where it doesn't currently have many restaurants, Penegor said.

Reef, the largest parking operator in North America, has struck deals with restaurant chains like Burger King, Nathan's Famous, and Wendy's to cook and sell food in mobile kitchen hubs it parks in its parking lots.

Penegor said during Wednesday's earnings call that Wendy's had already tested eight Reef ghost kitchens in Canada. Reef would operate as a Wendy's franchisee, he said.

Penegor said that Reef would be responsible for buying the new ghost kitchens and recruiting workers, and would pay a royalty-fee rate of nearly 6% - around 50% more than other franchisees pay.

Read more: Ghost kitchens operators are expanding their business models beyond the rent-a-space model

Abigail Pringle, Wendy's chief development officer, told Insider in June that the company had developed its ghost-kitchen strategy before the pandemic so that it could open new units faster and at a reduced cost. This is because ghost kitchens have much lower real estate, staffing, and operational costs than full-service restaurants.

Pringle said that Wendy's already had more than 30 ghost kitchen locations across five countries with multiple operators, with the majority being franchise-operated.

Pringle said that ghost kitchens allowed Wendy's to serve customers in dense downtown areas, where it's difficult to build free-standing restaurants, especially ones with a pick-up window.

Ghost kitchens could also allow Wendy's to offer limited menus with more targeted and profitable items, Pringle told Insider.

"It's a smaller space, so we do need to think even more strategically about the menu," she said. "The benefit to us as an operator is that we can streamline operations, improve profit and loss, and give customer items they crave most from the brand."

Wendy's opened its first UK restaurant in June after exiting the market around 20 years ago. It now plans to open up to 400 restaurants across the UK - and Penegor said that, thanks to the new partnership, Reef would become the first Wendy's franchisee in the country.